Whither Facebook?

Checking in and adjusting strategy for one of my larger Real Money Portfolio holdings

By Travis Johnson, Stock Gumshoe, March 21, 2018

Everyone is talking about Facebook (FB) in the wake of the Cambridge Analytica scandal, and the stock is one of my larger personal holdings… so although the stock has not yet hit my stop-loss trigger that always causes me to rethink and re-analyze a holding, I feel the need to share my thoughts and my decisions about how I’ll treat the shares I hold in my Real Money Portfolio.

Facebook has been through this kind of thing before — and so far, each time they have come back into users’ good graces and kept growing… but there is certainly a pretty long history of unpleasantness — the folks at techcrunch put together a good summary of all the similar facebook “violations” here if you’d like to refresh your memory.

Does that cycle of data mishandling and angry response end sometime? Does the investor enthusiasm erode? Is this latest outrage going to be the breaking point?

Possibly, but to whose benefit? Will people stop using social media as much in general? Will they start using Twitter (TWTR) more? Snapchat (SNAP)? Those guys are far less able to monetize their “big data” assets, perhaps because they have not yet gotten as adept at the marketing use of their users’ data, so they aren’t as immediately appealing to investors.

The valuation for Facebook is now approaching “crazy,” though, compared to the rest of the “big tech growth” world… FB below $170 is now trading at less than 20X 2019 earnings. With 20%+ earnings growth. Those earnings forecasts could easily change, of course, particularly if Facebook’s solution to their current problems is to throw money at the problem by piling more people into oversight in some way… or if they face truly massive fines, or slower revenue growth than analysts expect.

Cambridge Analytica is clearly getting thrown under the bus as an abuser of data, with Facebook ham-fistedly issuing “mea culpa” statements and doing some self-flagellation, with probably more to come, but so far we’re not hearing about any way that they’re really changing their business dramatically more than was already in the cards. That too could change any moment, of course, particularly as more stories come out about other companies (and political campaigns) that have similarly had much deeper access to your Facebook data than you might have thought… and as we all act with anger about ...

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